So the big deal this week isn't one deal.

We're talking about the M&A roundup for Q1.

Is this actually a sale of a business or a spinoff? I think what happens realistically in this space is even if there's a bunch of uncertainty, you've got all this pent-up demand for M&A.

Companies typically do this when they have a business which is underperforming relative to the rest of the business.

In the near term, it does feel like it's going to be tough.

But the food industry is under so much pressure at the moment.

It's a really competitive, mature industry and very low growth.

When are we going to know if this transaction is really a success or not? Hi to all our listeners, and welcome to this week's episode of "What's the Big Deal?" where we take a look under the hoods of major deals in the public and private markets and explore developments in the finance industry.

My name is Deborah Taylor, and I'm going to use my experience from my career in investment banking to bring insights from a public markets perspective.

And I'm Graham Smith. I'm going to use my experience in private equity and private credit to bring the private market perspective here.

Thanks, Graham. And please do introduce what's the big deal that we're going to be looking at this week.

So the big deal this week isn't one deal.

We're talking about the M&A roundup for Q1.

I don't know how we already reached the end of a quarter, but we've got some preliminary stats for deal activity in Q1.

Preview, it's been a bumper quarter for M&A, particularly in the mega deal space. We say mega deals, we're talking deals over $10 billion in enterprise value.

So in Q1 2026, we had about $1.3 trillion in total M&A, and we're going to get under the hood of a couple of the big transactions that's made up that number.

Absolutely. So we've got two big topics to unpack, and I have to say I'm especially excited about the deal that we're going to look at.

We're going to look at Unilever, because we finally get to talk about a European company.

So in terms of what we'll cover in this episode, we'll start off with the big picture. Graham, you'll talk us through Q1's bumper M&A deals, and also maybe we can talk a little bit about what's driving that surge in mega deals.

We're then going to take a bit of a dive into the Unilever deal, and we'll answer two big questions. Firstly, why Unilever exiting the food business, has this industry gone stale? And then secondly, is this actually a sale of a business or a spinoff? Plus, we're going to crunch the numbers and see whether this is a good deal or a recipe for a shareholder disappointment.

So Graham, why don't you kick us off with a review of Q1 M&A.

What particularly is driving this? Yeah. So Q1 M&A, again, we had a bumper quarter for mega deal M&A. Again, mega deal, over $10 billion.

These are really the deals that are driving most of the M&A volume.

So when we talk about $1.3 trillion total enterprise value in Q1, a great quarter for M&A, it's really important to look at both the big and the small side.

So we have, technically speaking, I think Q1 2026 was the best quarter overall in terms of number of mega deals. I think we had 22 deals over $10 billion in EV. The last quarter we came close was Q4 2015, where we had 21 deals over $10 billion EV. Now, I mean, we're both financial trainers, so if we want to be intellectually honest about that, I guess we really need to adjust 2015 $10 billion to 2026.

But even if we call that, I don't know, say $14 billion, we've got basically we're neck and neck with the best quarter ever for mega deal M&A. And I think there are a few things that are driving that. One is we've had so much uncertainty over the last couple years really in terms of, well, recently, the Middle East conflict, but generally, at least in the US, we've got tariff uncertainty. The political environment here has been kind of all over the place. And it's interesting.

I was talking to one of my friends who's still in banking.

He runs one of the M&A teams at a shop here in LA, and he was saying when our president was first elected and started opening his mouth about tariffs, everything was off. Right? Everyone put pencils down and just not a lot was happening.

It's like that line from "Jurassic Park" where life finds a way.

I think what happens realistically in this space is even if there's a bunch of uncertainty, you've got all this pent-up demand for M&A, for transactions, and ultimately it's going to happen sooner or later. And I think what we're finding is people are saying, "Yeah, there's some uncertainty in the world, but I've got this deal that I've been trying to get done for a while. Let's just go ahead and see if we can push it through." The other thing in terms of the political environment here that a lot of people have been saying is obviously we've got antitrust concerns anytime we talk about mega deals.

We've generally got a political environment that's fairly friendly to this kind of transaction.

Mm-hmm.

So I think people are kind of weighing up, yeah, I've got economic uncertainty, war in the Middle East, but at the same time, I've probably got a much easier job of pushing a deal through that otherwise might've been tricky in a different political environment.

But this is really driven by the mega deals.

So if you look at, I mean, overall the league tables for M&A look great, but I think if you're one of the players that is participating in this kind of M&A, you're feeling pretty good about life right now. But the smaller deals just haven't been there to the same extent. So it's really these 22 deals over $10 billion that's really bumping up the M&A league tables this quarter. So it's kind of a tale of two halves.

And Graham, you say, I love this phrase, life finds a way.

To what extent is this private markets find a way? As in, is some of this fueled by the level of dry powder in the private markets? Is that fueling the surge? I think we were talking about this the other week in terms of the amount of dry powder available in both private equity and private credit. We've talked about public companies staying private longer just because so much funding is available. I think absolutely.

Let's put yourselves in the position of you.

You run a private equity fund, you run a private credit fund.

You've raised a bunch of money from investors.

Ultimately, you need to go put that money to work if you want to earn a return on it. So you can't sit tight that long.

I think for those reasons, we're always going to see these waves up and down where people push the pause button on things in times of uncertainty.

But ultimately, this backlog of pent-up demand is going to work its way through the system, and I think that's playing out here and now today when we see this record-breaking M&A deals.

And in terms of league tables, is there any color you can provide around which banks particularly are sort of winning around the M&A deals? So Goldman Sachs always seems to find their way to the top.

So they are, in terms of Q1, they're number one in the M&A league tables at $425 billion.

Then you've got the next three biggest banks, just behind Goldman at JP Morgan, Morgan Stanley, and Citi in the $200 to $270 billion range. So I think it's fair to say the big banks that have a bunch of different industry teams are just really present across a lot of these deals. And then you start to look at some of the more niche and some of the more sector-focused players, and even firms that you would expect to be not quite as high, say on the M&A league tables this quarter, say like a Rothschild as an example, $100 billion. They advised on the Unilever transaction, I believe. So you look down, you see Lazard, Centerview, Rothschild, Evercore, Barclays.

You've got a bunch of other banks that some of these are more sector-focused, a bit more specialist.

It doesn't necessarily matter that you're a smaller bank compared to Citi, JP Morgan, Goldman. If you're advising on these big deals, you're still doing really well from an M&A perspective.

All right, so Debs, on the note of mega deals and big-ticket M&A, we've got one we want to dig under the hood of a little bit more this week. This is a company you know pretty well.

So let's talk about Unilever's disposal of one of their foods businesses to McCormick.

What happened here? Yeah. Well, let's just start off for listeners that aren't familiar with Unilever.

It's a conglomerate that has food, home, and personal care products, and over the last few years, it's been sunning down a lot of its food businesses. I know a lot of analysts have been referring to this as them defuding their portfolio.

It sold its tea business a few years ago.

Its ice cream business was spun off just at the end of last year, and now they're selling the main food business. Now, in terms of what's in that business, there's a whole range of different products, but some of the flagship products are Marmite and Hellmann's. Now, Graham, is Marmite a big thing in the US? Does that mean anything to you? You can tell by the reaction on my face that it's not.

So for our US listeners, Marmite is a, it's like a yeast spread. Is that right? It is. It's a really strong flavor.

It's I feel like almost unanimously loved across the UK, but it's very much a love it or hate it kind of situation and- Absolutely. Well, it's the slogan ... some of my British friends, when I find out what they use Marmite for, it's like Marmite avocado toast. As a native born Californian, I'm like, "What is this?" I know. It sounds really weird. And their slogan actually was, their advertising slogan was, "Love it or hate it," and it's actually now entered- Yeah ... the lexicon in England. Like we refer to things as being a Marmite product, as in you either love it or hate it. Like a polarizes opinion.

So for us- Yeah ... this is a big deal. And in terms of why they're trying to sell this- Marmite's getting sold. Like Yes. Absolutely ... are there riots on the street in London today? There will be, I'm sure. At least I'll be rioting on my own because I do love it.

And in terms of why they're trying to sell this business, well, any disposal is about unlocking value. When we're talking about M&A and combining businesses, we're talking about creating value by putting companies together.

The classic phrase is one plus one equals three.

But when we are disposing of businesses, we're going the other way.

We're saying that the businesses will be worth more when they're separate, so effectively three equals two plus two.

So that's what they're trying to do, and companies typically do this when they have a business which is underperforming relative to the rest of the business.

It's like dragging down the performance of the whole group.

So it's a bit like benching your weakest player on a football team.

By the way, is this prevalent across all their foods businesses? What's the main reason that Unilever has decided to dispose of ostensibly all of their foods businesses, not just a couple? It's a great question. Actually, this is a really interesting one, I think, because this is a reflection of the fact that the food industry is under so much pressure at the moment. It's a really competitive, mature industry and very low growth. Now, Unilever's food business in general has been growing at such a low rate over the last few years.

I mean, probably around two, 2.5% growth.

Now, if you compare that to other parts of their portfolio, like the beauty and personal care products, that's been growing at around 6, 7% a year. So there's a real divergence in terms of growth rates, and it's not just Unilever. It reflects the fact that the food industry has been under quite a lot of structural pressures.

And I think the two key pressures which have particularly emerged in recent years are, first of all, weight loss drugs.

So those weight loss drugs, there's been research that shows that households where someone is using one of these weight loss drugs, they spend 5% less on their food per year.

And in addition to that, we've got a cost-of-living crisis that's been happening because of inflation, and people tend to trade down quite quickly on their food purchases. They move away from branded food products.

When people are under pressure with their budgets, there's something called the lipstick effect, where actually people prioritize small luxuries. They don't prioritize buying branded food or even their favorite Marmite.So this is universal across all the food industry.

There's been these pressures, and we have seen other businesses disposing of part of their food portfolio. For example, Nestle's looking to dispose its ice cream business, and General Mills has disposed of a number of their brands.

So basically, am I right in thinking that Unilever's basic math here, or basic hypothesis is we have our overall combined business.

We think we are getting hurt too much with, say, a low valuation multiple because everyone is penalizing us too much for this, for lack of a better word, crappy food businesses that we have.

So just sell these and then up the valuation multiple anyway on the core part of the beauty business.

Is that kind of the logic? Absolutely. And they're basically trying to pivot to becoming a pure play beauty and personal care products business.

And they're moving away from this strategy where they wanted to be a really diversified behemoth of a business, and they're going to become much more focused. But yes, absolutely, this should be rewarded in theory by a higher multiple, but we'll see if that plays out.

Okay. So Debs, what does this specific transaction involve? Just give me some kind of high level beats on exactly what's happening with just this one sale.

Yeah, it's a good question, and it's actually quite complicated.

The spoiler here is this isn't actually a proper disposal.

It's more what I'd describe as a gradual withdrawal from the food industry for Unilever.

Okay.

Now, what they're actually doing is they're selling their food business to McCormick for $45 billion.

There's two really important things here.

First of all, as part of the sale, they get $16 billion in cash, and then they get about $29 billion worth of shares in the combined business. Now, McCormick is much smaller than Unilever's food business.

It's less than half of the size. And so the shares that are received by Unilever, well, that gives them a 65% stake. That's a controlling stake in the combined business.

So this is definitely not a full exit by Unilever at this stage, though they do say they plan to sell down their stake gradually over time. Now, the reason that they're doing this slightly complicated transaction is tax. That's generally the case.

When things seem complicated, it's usually to get around tax rules.

And what they're actually doing is they're using a structure called a reverse Morris trust. Now, this is a structure which is pretty much as boring as it sounds, but it is really important because it does result in the deal being more of actually a spinoff than a disposal.

Now, in terms of what a reverse Morris trust involves, in case you want to impress your friends over dinner with what it actually is, well, what's going to happen is Unilever starts off by creating a shell company, and it transfers the food business into that shell.

And Unilever then hands the shares in that company to McCormick. And then McCormick owns the food business.

They then hand over their cash and their own shares to Unilever. And because McCormick is so much smaller than Unilever, that means that when Unilever gets the shares, they retain control in the business that was handed over to McCormick.

And that's important because the fact they retain control allows them to avoid tax. Whenever you sell something, whenever I sell something like shares, when companies sell shares, there's always a risk of having to pay taxes on that. So this structure is specifically to avoid them having to pay taxes, and that's much more similar to a spinoff where you don't usually pay tax on a spinoff.

Do we know-- I don't know the answer to this question.

Do we know why it's called a reverse Morris trust? Was this, again, the first time this structure was used, the company it was used with, or the name of the lawyer who invented it? Do we have any idea why we have spinoff, split off, and then reverse Morris trusts? What's the backstory here? Graham, that is a great question, and the answer is as boring as the name reverse Morris trust suggests.

Which is it was the orig- Oh, shoot. I was hoping for something really exciting here.

No. It was the first time. Well, it was the court case where it was first ruled that this was a tax-free transaction.

So there you have your answer, and you can impress your friends at dinner parties with that, too.

I'm sure everyone's going to be really thrilled to hear that at a dinner party.

But it's good to know.

Absolutely.

Okay, so there's obviously a lot going on here. There is and there isn't.

This is a well-understood structure, but there are a lot of moving pieces.

It feels complicated. In terms of what this actually accomplishes for Unilever, does it make sense from a financial perspective? And when are we going to know if this transaction is really a success or not? I think my view is that an exit from the food business by Unilever, it actually does make sense.

But this particular deal probably isn't the outcome that Unilever was looking for. And that's partly because it's not a full exit, and also because the numbers don't look great, if I'm honest. Now, I think some context is needed here.

Now, behind the scenes, Unilever had been having negotiations with Kraft Heinz, but these discussions, they fell apart just in recent months because of competition concerns.

Okay.

And I think this would've been a much better deal.

It would've given them a full exit, and an exit to a really large buyer with lots of strategic overlaps.

They probably would've achieved quite a good price if they'd pursued that.

European competition concerns, American competition concerns.

I'm just thinking because we were talking about how so many players right now are pursuing M&A because we think actually getting the regulatory clearance in the US is going to be easier than normal.

I guess here we've got a big global company. We've got to worry about the regulator, not just in the US, but in the EU as well.

Absolutely. I think the challenge here is they're both global businesses.

You're going to have to get sign-off from the competition authorities in every major location where there is really big strategic overlap.

Yeah.

So I think that's probably what derailed the negotiations.

And that's problematic because it then leaves Unilever with fewer options in terms of who to talk to. Now, in terms of the numbers in this deal, I think there's a few concerns which maybe have spooked the market a little bit, and the first thing is the valuation.

Now, the valuation of the food business is around 13.8 times their EBITDA. As context, Nestle and McCormick, they trade on just over 13 times, and General Mills and Danone, they trade on 10 times.

And those are kind of the closest competitors, I would say.

So there is really very little premium being handed over here to Unilever for selling 35% of their food business.

Yeah.

So the valuation is not stretching in any way.

Also, Unilever's going to retain this controlling stake in the food business, in the combined food business.

That business is going to be really leveraged.

It's going to have debt, which is about four times its EBITDA.

And typically, public companies are aiming for around two and a half to three times EBITDA.

Now, the reason for that- I was going to say, I used to be an LBO investor.

Four times sounds great, but- Yeah ... much different scale, much different investment type, for sure.

Absolutely. Now, it is a food business, which are quite resilient companies generally. But the reason for the amount of leverage is, of course, because Unilever wants to load up the company with debt before they spin it off, because then they can extract cash, and we refer to that as a dividend recap.

Now, that's great for Unilever's cash position because they get all the cash from the disposal. But then the problem is they're left with a controlling stake in a business that looks a little bit more financially precarious.

So there's definitely risks associated with the leverage.

And then the final thing that I think makes the market a little bit more nervous about the deal is the cost of separation.

And Unilever has quite a lot of form here.

But in terms of the costs here, it's around 4 to 500 million euros in stranded costs. And those stranded costs, those are fixed costs that Unilever's main business will have to continue to incur that relate to the food business even after the separation. And therefore, they'll have to spend another 500 million euros in reorganization costs to get rid of or eliminate those fixed costs. So this is not cheap, and it's, again, a little bit like what's happened with the ice cream spinoff that they did recently.

There's kind of echoes of that deal here- Yeah ... where it's just really spooking the market that it's just going to be so costly to try and separate out these businesses.

So the costs will probably weigh on Unilever's results for quite a few years to come. There's the risks associated with the leverage of the business that they're still controlling, and really the market has not responded particularly well to the news.

We've had the share price of Unilever fall by about 7% since the announcement.

And the feedback, I know it's not great, and the feedback from investors is, "Oh, this looks like a really complicated deal." It's not a clean exit, which really was what they would be looking for if they're refocusing- Yeah ... their strategy, and then the costs associated with the separation, and also the leverage in that business now. So there's a whole kind of menu of reasons why the market's not particularly loving this deal at this point.

Well, it's going to be tricky from Unilever's perspective to really pull off all these transactions because you think about the big conglomerate that Unilever is.

Obviously, we've got a bunch of separation costs.

It's not like you can just split these cleanly day one. Regardless of what the transaction structure is, whether it's a reverse Morris trust or an outright sale, you've got centralized procurement, supply chain, all the stuff that Unilever's been doing centrally for such a long time. Getting these properly separated is a lot of work and costs a lot of money.

So I guess if you're Unilever, you really have to take the long term, probably over three- to five-year view that these transactions are really going to unlock value.

Because in the near term, it does feel like it's going to be tough.

Yeah, it's interesting because I think probably their more successful disposals were actually the ones to private equity that happened, I think the spreads business was in 2019, and the tea business in 2022. So kind of throwing it back to you, Graham, why do you think this hasn't appealed in terms of selling to private equity? Why do you think they haven't pursued that route? I think honestly, you in your intro talking about the overall macro drivers behind the food businesses here, I think we have almost answered our own question, right? Think about what does private equity want.

Private equity wants some kind of growth story.

The whole point of private equity is to buy something, improve it, or use it as a platform, build it into something else, right? But the very basic essence of private equity is like all investing. It's buy low, sell high.

But you think in the time that you own this company, there's a bunch of operational improvements you can make to this business.

You might find new markets to sell things through.

You've got to have some interesting growth story to make something attractive from a private equity perspective. Either that or you've got to have some real, say, huge cost outplay, and with something like some of these businesses, it's almost the opposite, right? Because you think- Mm ... Unilever's probably got relatively efficient procurement supply chain across this huge group. If you're private equity, you're buying something, you're then saying, "Okay, I've got to spend a few years just... cutting it off from this beast that's Unilever. And then ultimately, what am I going to do with it? If it's one of these really low growth businesses where we're really seeing a lot of consumer price pressure factoring through into demand and therefore results for these kind of businesses, what's the real investment hypothesis here? I think it's tricky.

Mm.

So it's kind of like we've been talking a lot about private credit the last few weeks and some of these secondary asset sales where you start with your kind of performing good assets.

I'm very much assuming that's been the case with Unilever's disposals here.

With anything deploying, yeah.

Anything that was a little bit interesting and you could sell to private equity because there's some kind of growth story built into it, they've probably done those transactions because they're a little bit easier.

Now we're left with the stuff that's pretty tricky.

We did a test pilot, which we haven't put on this platform, maybe we will at some point, talking about the ice cream business for Unilever. Ice cream, you've got all these specific supply chain dynamics. You've got cold delivery, all this stuff that if you're private equity, you say, "Hey, unless this market's really growing fast, why would I bother?" And I'm guessing that's what's been happening here.

Gosh, I feel a bit sad. You're basically saying Marmite's the kind of the crumbs left over from the- ... from the Unilever food business. Oh, I don't really know how to take that.

Hey, if you can somehow convince everyone in the US to start buying Marmite, then maybe that's the growth story. I don't know.

Oh.

Is McCormick going to pull this off and we're going to start seeing a lot more Marmite in the supermarket shelves in the US? Maybe. We'll see. I'm not going to hold my breath though.

We'll watch this space. Yeah, absolutely.

So, okay, I think it's time for our key takeaways now.

And I'm loving my food analogies today, so I'm going to say that my key takeaway is that this deal, it feels a bit like a soufflé that's fallen flat. There were big expectations, but in reality, it's a bit underwhelming and slightly messy. How about you, Graham? Ooh.

I'll pull out one of my analogies from the ice cream business, which is that maybe we've got a rocky road ahead.

Oh.

Definitely in terms of M&A, I think we're going to see some lumpiness up and down. I don't think we're out of this world in terms of geopolitical uncertainty. So do we see another pause at some point once we work through this big M&A backlog? Quite possibly, and then I think if we look over history, the same thing is going to repeat itself. If we push the pause button for a little while, then we'll see a few more bumper quarters of M&A.

And then I think if you really zoom out and look over a long period of time, you'll see some blips up and down, but in general, deals are going to find a way to get done.

I'm afraid that's all we've got time for today, so thanks ever so much for listening to "What's The Big Deal" this week.

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Fabulous. All right, thanks ever so much, and we'll see you next week.